Market Reacts to Proposed Tariffs

Source: Ben Brown, Program Manager- Farm Management Program, College of Food, Agricultural, & Environmental Sciences, Department of Agricultural, Environmental, and Development Economics

Here is an update on where we stand today on corn and soybean exports and how the markets are responding to the tariff announcements between the US and China. Several of you have probably followed the story in the news and are already aware of what’s going on.

Quick recap of the timeline- The Administration imposed a 25 percent tariff on steel and 10 percent tariff on steel and aluminum imports for all trading partners and then started to provide exemptions for countries that were willingly working on a free trade agreement. The United States is a net importer of steel with most of our imports coming from Canada and the European Union. China is the world’s largest producers of steel but only 2% of their product is exported to the United States. President Trump removed the steel tariffs on Mexico, Canada, Kora, EU and some of the other trading partners but left the tariff on China. This accounts for about a 3-billion-dollar loss to the Chinese. On Monday the Chinese announce tariff on U.S. pork imports at 25%. This is a huge blow to an industry that was already seeing breakeven to negative per head returns. Our estimate given current budgets was a loss of about 10 dollars per head.

Yesterday the Administration announced proposed tariffs on intellectual property rights and other Chinese products to the tune of about 50 billion dollars. That was met with response today with China announcing tariffs on 100 plus agricultural good at a rate of 25% to be enacted the day the U.S. enacts their tariffs. Important to note that the tariffs are not in place, but the market is reacting to uncertainty.

That brings us to where we are today. Half of the U.S. soybean crop is exported and 62% of the exports go to China, meaning that one third of the U.S. production of soybeans goes to China. Given tariffs at 25%, my estimate from the model shows that we could lose 60-70 percent of our export market to China. That means that if these tariffs go into effect only a fifth of our soybean production would go to China or 1 in 5 soybean rows. Those soybeans will need a buyer. Some will be kept in the United State and fed for feed grain and some will be exported to other world markets because of the lower price.

Argentina has mostly harvested their crop and while it was down in total production due to a drought, they will pick up some soybean market share in China. The big winner is Brazil. They had a relatively strong soybean crop and will be ready to export soybeans. Their second growing season this year is in large percentages corn, but they will also have some soybeans harvested in a couple of months. Like the U.S. drought of 2012, the U.S. will lose market share of soybean exports and it is not certain when we could gain that back. The lower soybean price will lower cost for hog producers and my estimate is now a 7 dollar per head loss.

The United States exports very little corn to start with, only 15% of production not taking into account ethanol exports, and of that the bulk goes to Mexico and Japan. The 25% Chinese tariff won’t affect the corn price as much as the soybean price. However, with a lower world soybean price an incentive to grow corn presents itself. More corn acres would pull down the price of corn. Right now the corn market is down about 7 cents but has been down 12 cents. The perspective planting report that came out Thursday showed an intention by U.S. producers to plant 88 million acres of corn or roughly 2% less than last year. Weather will be the big player between now and June when the next planting report comes out as a wet spring will push some corn acres into soybeans. Even with the tariffs on corn today, I’m still optimistic for a rally in corn prices this summer into harvest. I think we will see an increase in the marketing year average price for corn next week in the WASDE based on the assumption that our feed usage of corn stays between 35 and 40% for the second half of the marketing year.

To the average U.S. consumer these tariffs could cheapen food products at the expense of higher manufactured goods like technology imported from China. Food consumption makes up a relatively small portion of our expenditures meaning that the higher manufactured goods could be higher than the gain from cheaper food.

From a farm management stand point, this could mean higher equipment and input costs along with lower output prices. A double whammy for farmers.

In Ohio we saw a decrease in the amount of corn held in storage which likely means a weakening of basis while soybean on hand was larger signaling a strengthen in basis.

All in all, the markets are reacting to uncertainty. However, if the Administration does move forward with the tariffs we could continue to see decreases in soybean prices and possibly modest decreases in corn prices. The futures market for soybeans is down 38 cents right now but was 60 cents down when I woke up this morning. I look for a little bit of a rebound later today and tomorrow as I think the markets over reacted to some extent, but will not return to the level they were prior to today.

This will also complicate the farm bill adding another hurdle to the already narrow window that existed of getting it done this year.

Grain Storage in the United States and Abroad

by Ben Brown

Click here to Access article Grain Storage in the U.S. and Abroad (has graphs)

Happy Grain Bin Safety Week! That right, February 18th through the 24th is national Grain Bin Safety Week. Grain bins are certainly nothing to play chicken with as the grain inside, while used to make the food that nourishes our bodies, can also be a quicksand-like hazard. Taking extreme caution and having at least one other person around while inside a grain bin is highly recommended.  In fact, since some grain bins are located on the edge of the field without a readily known mailing address, making sure the address is posted somewhere visible is just an added layer of preparedness in case emergency help is needed. Grain bin safety is important! In honor of Grain Bin Safety week here is a quick review of the grain on hand both in the United States and internationally.

There should be little surprise that stocks, both domestically and abroad, have been on the rise the last five years as world prices for corn, soybeans, and wheat declined after their peaks in 2012/13. Five straight years of above trend yield for worldwide grain production have contributed to the abundant stocks. An example of trend would be if a football team won six games one year, seven the next, and eight the following. Given trend, one would expect that in the fourth year, the team would win nine games, but instead they won fourteen. This would be an above trend year. Arguments can be made whether the exceptional world yields were products of good weather globally or technological advancements in seed. Lower prices for grains have encouraged producers to retain larger portions of their crop on farm or in storage at local elevators in the hope for an upward bounce in price.

Starting with domestic soybeans, 2017 was another solid year for soybean production. The National Agricultural Statistics Service will make the county yield estimates for 2017 official later in February, but early estimates are for 49 bushels per acre. This is slightly down from the previous year of 52 bushels per acre. However, planted acres for soybeans have steadily increased the last few years and the increased acreage more than compensated for the decrease in yield. Soybean production in the U.S. totaled a record 4.39 billion bushels in 2017. Luckily there has been an increased use for crushed soybeans, soy protein and soybean oil. Figure 1 shows domestic stocks and the percent of total use.

In figure 1, we see that the stocks to use ratio for U.S. soybeans has increased the last four years largely contributed to strong yields across the Midwest and increased acreage. Due to profitability of corn and soybeans per acre, the United States Department of Agriculture has projected that soybean acreage will continue to increase in the years to come. The U.S. exports a little over 2 billion bushels of soybeans each year, which is almost half of the total use of domestic production.

Moving to “King” corn, the same story roughly applies. However, this time record corn yields across the Corn Belt were counteracted with a decrease in harvested acreage. Not all of the increase in soybean acreage for 2017 came from corn acreage, as wheat and sorghum were also contributors. Especially in Kansas, Nebraska and the Dakotas. However, with a national yield of 177 bushels per acre, 2017 beat the previous record yield. Total production in the U.S. came in at 14.6 billion bushels, down 4 percent from 2016.

At 20 percent, the stock to use ratio for corn has increased in six consecutive years. Another strong yielding year or a decrease in the demand for corn products could put even more downward pressure on corn prices. Ethanol production uses about 5.5 billion bushels and corn used for animal feed makes up about 5.6 billion bushels. These two categories make up the largest segments of U.S. corn use. Currently the World Agricultural Supply and Demand Estimates are projecting a 2017/18 marketing year average price of $3.30, which is below Ohio’s average breakeven price and $0.40 below the reference price created in the Agricultural Adjustment Act of 2014 for Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) payments at $3.70.

For wheat, one of the bright spots is that the U.S. stocks to use ratio has started to decrease after a historic high last year. However, the downside for wheat is that there has not been the large driver for demand like in corn and soybeans with ethanol and protein respectively. Since 1996, the total use for wheat has remained relatively flat with slightly decreasing production on reduced acreage. Until demand for wheat picks up, wheat acreage will continue to decrease. The 2018 wheat planning was down 1 percent from 2017 and down 10 percent from 2016 coming in at the second lowest projected planting on record. The WASDE projected price for 2017/18 is $4.60 also below the reference price of $5.50. Figure 3 shows the quantity of U.S. wheat use. The majority of wheat use is in foodstuffs like bread, cookies and pasta.

Putting all three crops on the same graph, Figure 4 compares the stock to use ratios for all three U.S. commodities.

However, the U.S. is not the only place with large ending stocks in storage. World supplies of corn, soybeans and wheat have also been on the increase the last few years as referenced by Figure 5. Corn and soybeans stocks to use ratios have both showed a decrease on stronger demand and a growing drought in South American crops specifically Argentina causing reduced yields.

International trade is a topic of popular discussion in America right now as the renegotiation process of the North America Free Trade Agreement just finished its sixth round of negotiations. Canada and Mexico are importers of U.S. corn and soybeans with China remaining as the largest importer of U.S. soybeans. A strong U.S. dollar relative to international currencies weakens the market share of U.S. goods in the international markets. In the last few years, Brazilian soybeans have chipped away at the U.S. export market to several of the world’s largest importers of soybeans. Exports remain vital to the U.S. as large portions of both corn and soybeans production rely on international trade.

Summary:

Stocks in the United States and globally have grown in the last few years on larger than expected yields. Large stocks suppress grain prices as grain comes to the market out of private storage when market prices tick up. It is unlikely to see large movements in future prices for the coming growing season without a weather related shock. However, local elevators will probably fluctuate their delivery price based on their need for grain. Ethanol plants in Ohio have already started to do this when needing more corn. Large stocks internationally will continue to hurt U.S. trade internationally as a strong U.S. dollar makes U.S. products more expensive. Some countries like China have reversed domestic commodity price supports to work down their stockpiles of corn. As stocks decrease, the expectation is to see larger swings in markets from weather related events both domestically and abroad. Happy National Grain Bin Safety Week!

Ben Brown
The Ohio State University Department of Agriculture, Environmental, and Development Economics
614-688-8686 (Office)  660-492-7574 (Cell)
brown.6888@osu.edu

2018 OSU Outlook Meeting Schedule

Source: Chris Bruynis, Associate Professor & Extension Educator

Ohio State University Extension is pleased to announce the 2018 Agricultural Outlook Meetings! In 2018 there will be seven locations in Ohio. Each location will have speaker addressing the topics of Free Trade Agreements: Why They Matter to US Agriculture, Grain Market Outlook, and Examining the 2018 Ohio Farm Economy. Additional topics vary by location and include 2018 Farm Bill Policy Update, Dairy Production Economics Update, and Farm Tax Update.

Join the faculty from Ohio State University Extension, Ohio State Department of Agricultural, Environmental, and Developmental Economics, and Industry Leaders as they discuss the issues and trends affecting agriculture in Ohio. Each meeting is being hosted by a county OSU Extension Educator to provide a local personal contact for this meeting. A meal is provided with each meeting and included in the registration price. Questions can be directed to the local host contact.

The Ag Outlook presentations will be recorded this year and be made available to farmers not living close to the meeting locations or those unable to attend. These will be posted in early February on the Ohio Ag Manager website located at https://u.osu.edu/ohioagmanager/resources/. For additional information on recording, please contact Chris Bruynis at bruynis.1@osu.edu.

The outlook meeting are scheduled for the following dates and locations:

Date: January 22, 2018
Time: 7:30 am – 10:30 am
Speakers: Barry Ward, Matt Roberts, Ian Sheldon
Location: Emmett Chapel, 318 Tarlton Rd, Circleville, OH 43113
Cost: $10.00
RSVP: Call OSU Extension Pickaway County 740-474-7534
By: January 15th
More information can be found at: http://pickaway.osu.edu

Date: January 22, 2018
Time: 5:30 pm – 8:30 pm
Speakers: Barry Ward, Matt Roberts, Ian Sheldon
Location: The Loft at Pickwick Place, 1875 N Sandusky Ave., Bucyrus OH 44820
Cost: $15.00
RSVP: Call OSU Extension, Crawford County 419-562-8731 or email hartschuh.11@osu.edu
By: January 15th
More information can be found at: http://crawford.osu.edu

Date: January 26, 2018
Time: 8:00 am – noon
Speakers: Barry Ward, Matt Roberts, Ian Sheldon
Location: Der Dutchman, Plain City
Cost: $15.00
RSVP: Call OSU Extension, Union County 937-644-8117
By: January 19th
More information can be found at: http://union.osu.edu

Date: January 29, 2018
Time: 9:00 am – 12:00 noon
Speakers: Mike Gastier, Matt Roberts, Ian Sheldon
Location: St Mary’s Hall 46 East Main St. Wakeman, OH 44889
Cost: No Charge; $20.00 if past deadline
RSVP: Call OSU Extension, Huron County 419-668-8219
By: January 22nd
More information can be found at: http://huron.osu.edu

Date: January 29, 2018
Time: 6:00 pm – 9:00 pm
Speakers: Barry Ward, Jim Byrne, Ian Sheldon
Location: Jewell Community Center,
Cost: $10:00 (after deadline $20.00)
RSVP: OSU Extension, Defiance County 419-782-4771 or online at http://defiance.osu.edu
By: January 22nd
More information can be found at: http://defiance.osu.edu

Date: January 31, 2018
Time: 9:30 am – 3:30 pm
Speakers: Ian Sheldon, Jim Byrne, Ben Brown, Barry Ward, Dianne Shoemaker, David Marrison
Location: Fisher Auditorium
Cost: $15.00
RSVP: Call OSU Extension, Wayne County 330-264-8722
By: January 24th
More information can be found at: http://wayne.osu.edu

Date: March 23, 2018
Time: 11:00 am – 4:00 pm
Speakers: Barry Ward, Matt Roberts, Chris Bruynis
Location: Chamber Ag Day / Ag Outlook meeting, Darke County
Registration Flyer: http://go.osu.edu/2018darkeagoutlook
Cost: $20
RSVP: Darke County Extension office at 937-548-5215
By: March 16th
More information can be found at: http://darke.osu.edu

OSU Agricultural Policy and Outlook Conference Video Recordings

On November 9, 2017 the Department of Agricultural, Environmental, and Developmental Economics at The Ohio State University offered their annual Agricultural Outlook Program. Each presentation was recorded for those agricultural leaders that could not attend. We are making these available to everyone. Below are the links to the full conference and each individual presenter.

Full Seminar – 2017 Agricultural Policy and Outlook Conference: View Full Conference

Ani Katchova – Ohio Farm Financial Conditions and Outlook: View Dr Katchova’s Presentation

Ian Sheldon – Free Trade Agreements: View Dr Sheldon’s Presentation

Ben Brown – Ohio Farm Management Program Overview: View Ben Brown’s Presentation

Carl Zulauf – 2018 Farm Bill Outlook: View Dr Zulauf’s PresentationGeorge Mokrzan – Economic Outlook: https://youtu.be/6MPGrj1ugdc

George Mokrzan – Economic Outlook: View George Mokrzan’s Presentation

Gary Schnitkey – Current Outlook and Economic Conditions on Corn-Belt Farms: View Dr Schnitkey’s Presentation

Conference power point presentations can be found here

Technical difficulties or questions can be directed to
Kelli Trinoskey
Communication and Outreach Manager
The Ohio State University
Department of Agricultural, Environmental and Development Economics
Agricultural Administration Building, Room 250H – 2120 Fyffe Rd. Columbus, OH 43210
614-688-1323
trinoskey.1@osu.edu

Points to Consider Before Starting a Hops Operation

By: Brad Bergefurd, Horticulture Specialist, OSU South Centers

Hop farming requires a substantial investment in capital, time and management. A business and marketing plan is essential to developing a successful hops operation. A new factsheet has been released by OSU Extension to outline the pre-planning points that should be addressed to create a financially successful hops operation.

Economic considerations and site preparation are two important points for a successful hops operation and integral to a business and marketing plan. Planning in these two areas is essential, and the business and marketing plan should be developed at least one year prior to planting the first hop plants.

New hop growers are also encouraged to consider the details in this fact sheet before making an investment. Production budgets indicate at least $25,000 per acre may be needed to establish a high trellis hop planting and at least a $100,000 investment for a small-scale hop processing, drying, pelletizing, cooling, packaging and freezing facility built to federal and state food safety regulatory standards. This fact sheet looks at:

  • Market establishment
  • Labor needs and availability
  • Facilities for processing and storage
  • Insurance considerations
  • Financial and planning resources
Site preparation considerations including:
  • Site selection
  • Field preparation
  • Plant selection
  • Plant nutrition and fertilization
  • Pest management

The complete fact sheet can be accessed at: https://ohioline.osu.edu/factsheet/anr-58 or can be obtained by calling your County Extension office.

Ag Outlook and Policy Meeting to be held on February 2 in Wooster, Ohio

So what’s ahead for farmers and Ag businesses in 2017?  OSU Extension invites producers to attend the Ag Outlook and Policy meeting on Thursday, February 2, 2017 from 9:30 a.m. to 3:15 p.m. at the Fisher Auditorium OARDC located at 1680 Madison Avenue in Wooster, Ohio. A wide variety of experts will be on hand to share their agricultural outlook for 2017.

The following presentations will be made during the program:

Speculation on President Trump’s Policy Agenda and What Are Grain Markets Telling Us?- By: Carl Zulauf, Ag Policy Specialist and Professor Emeritus from The Ohio State University will provide “

Dairy Economic Update- By: Dianne Shoemaker: OSU Extension Dairy Production Economics Field Specialist

Beef Cattle Outlook- By: John Grimes: Extension Beef Program Specialist

Ten Legal Trends That Could Change Agriculture- Peggy Hall: OSU Extension Ag Law and Resources Program

Crop Budget and Cropland Rental Update- Rory Lewandowski: Extension Educator Wayne County

Farm & Estate Tax Laws – Planning for an Uncertain Future- David Marrison: Extension Educator Ashtabula County

This program is being sponsored by OSU Extension, Farmers National Bank, and Farm Credit.  The registration cost is $15 per person with the deadline of January 26, 2017. Make checks payable to OSU Extension. Please send checks and registration to: OSU Extension- Wayne County, 428 W. Liberty Street – Suite 12, Wooster, Ohio 44691.  More information can be obtained by calling the Wayne County Extension office at 330-264-8722 or email Rory Lewandowski at Lewandowski.11@osu.edu

2016 Grain Outlook Meeting to Be Held in Plain City

by: Amanda Douridas

Low crop margins are one of the biggest concerns farmers are dealing with. Projections are for crop prices seem to change daily. Are farmland rental rates going to provide any relief? What about input costs? These are all difficult questions to answer given predicting the future impossible. Based on their experience and research, University experts will do their best to answer these questions during a series of Outlook Meetings across the state.

Extension in Champaign, Madison and Union Counties, along with the Union County Agriculture Association are hosting a Grain Outlook Breakfast at the Der Dutchman in Plain City on January 27 from 8:30-noon. The cost to attend is $10 and reservations can be made by January 20 to the Union County Extension Office, 18000 St. Rt. 4, Suite E, Marysville, OH 43040. For more information, visit: http://go.osu.edu/agevents.

Dr. Carl Zulauf will examine what the grain markets are telling us and the price and return outlook for 2017. The morning will also feature a presentation from Barry Ward on examining land values, rents, crop input costs and potential crop profitability for the coming year. Additionally, Peggy Kirk Hall, J.D., will address ten legal trends that could change agriculture.

Other locations around the state can be found at: https://u.osu.edu/ohioagmanager/

Grain Marketing: Turning On-Farm Storage into Profit

With corn and soybean prices trading at values near or below breakeven points, it’s important to develop a marketing plan that allows farmers the ability to try and capture potential profits while minimizing risk. OSU Extension is offering three meetings this December for farmers to learn about marketing grain in a tight economy.

Farmers have the option of attending one of three meetings, featuring Jon Scheve of Superior Feed Ingredients as a guest speaker. Meeting dates and locations are as follows:

·       Auglaize County: Dec 7, 5-9pm. Wapakoneta Eagles (25 East Auglaize St, Wapakoneta, OH). To register contact 419-739-6580.  Pre-registration is due 12-2-16.

·       Paulding County: Dec 8, 9am – 1pm. Paulding County Extension (503 Fairground Dr, Paulding, OH). To register contact 419-399-8225.  Pre-registration is due 12-2-16.

·       Madison County: Dec 9, 9am-1pm. Beck’s Hybrids (720 US 40, London, OH). To register contact 740-852-0975.  Pre-registration due 12-5-16.

Jon Scheve of Superior Feed Ingredients will be talking about what can influence markets in the upcoming year and how to better prepare your operation for the opportunities and challenges you will be facing. Jon will explain how on-farm storage combined with forward selling, market carry, and basis appreciation can provide added income. He will also educate farmers on how hedging with futures and options can be used to protect farmers from risk.

Registration for each meeting is free and includes a meal. Pre-registration for each meeting is required. Contact the hosting county Extension office to register (Auglaize: 419-739-6580; Paulding: 419-399-8225; Madison: 740-852-0975).

Current Hay Conditions in Ohio

By: Maurice L. Eastridge, Department of Animal Sciences, The Ohio State University

The weather conditions have been variable in Ohio this summer. Some areas have been extremely dry and other areas have been very wet during the past two to three months. Thus, hay yield and quality are quite variable across Ohio. For those areas that have been very dry, yields have been adversely affected, even though the quality of the hay harvested may be rather good. For the areas that have been wet, it has been very difficult to get the second and three cutting harvested. Thus, even though yields may be respectable, quality has been adversely affected. Therefore, many livestock farmers in Ohio need additional hay for the winter. In some cases, they need to purchase hay of higher quality than they have on hand. Now is the time to make such purchases as the last cuttings of the year are occurring and before prices creep up post harvest as supply diminishes with ample demand.  Read the full article by clicking on current-hay-conditions-in-ohio

2016 Corn Silage Crop in Ohio

By: Maurice Eastridge and Bill Weiss, Department of Animal Sciences, The Ohio State University

The weather conditions have been variable in Ohio this summer. Some areas have been extremely dry and other areas have been very wet during the past two to three months. Thus, corn silage yields will likely be quite variable across Ohio this year. For those areas that have been very dry, yields will be adversely affected, but generally the concentrations of protein and energy will be better than average. Therefore, many dairy farmers in Ohio may need to purchase additional corn for silage or identify other ingredients to replace corn silage in the diet. Now is the time to make such decisions while some corn may still be standing in the field, other forages are readily available, and commodities will be less expensive near harvest time.  To read the full article click on 2016-corn-silage-crop-in-ohio